New Year’s resolutions for PE, Cerberus?
For M&A bankers, 2008 is perhaps best remembered using the catchphrase of Comic Book Guy from The Simpsons: “Worst. Year. Ever.” Dealmaking reached record lows in 2008, dominated by cancelled deals. At the start of 2009, questions linger about several companies, executives and deals. Most notably, though, there is a big question mark over private equity.
Last year was a bad year for PE firms as credit markets became too tight, stocks fell unpredictably low, and deals that were announced in better times began falling apart. PE deals fell to a five-year low.
The ‘Golden Age’ of PE quickly faded as many of the biggest buyouts announced in 2007 collapsed in 2008, including the $41 billion deal for Canadian telecommunications operator BCE, the largest announced buyout in history.
And many of the deals that did close are lining up to file for bankruptcy. Leverage – the backbone of PE deals — should be hard to come by for some time. And with the IPO market still frozen, firms will likely be holding on to their purchases much longer.
Attention-shy Cerberus struggled this year with two bad bets –GMAC and Chrysler. The government stepped in to help the auto industry – and Cerberus benefitted too.
As part of that deal, Cerberus had to hand over much of its GMAC stake to its investors. A big question for 2009 is whether investors will be able to get rid of their shares.
The handout of billions of dollars from the Treasury to Chrysler also put into question on Cerberus’ plans for the automaker in 2009. Unlike General Motors, Cerberus has provided few details on how it plans to make Chrysler viable.
Huntsman’s break-up payday
To terminate its $6.5 billion deal to buy Huntsman, Apollo Management’s Hexion Specialty Chemicals had to cough up $1 billion in fees and charges. This follows the long-awaited collapse of the private equity bid for Canada’s BCE last week, which cost buyers C$1.2 billion in break-up charges.
Hexion agreed to buy Huntsman in July 2007. The deal faltered amid the credit crisis. Apollo tried to walk away, citing insolvency concerns about the combined company.
But with a hefty break-up fee in its pocket – almost as much as its diminished $1.4 billion market cap – Huntsman is looking to settle what could be an even bigger score.
Huntsman sued twice over the deal – once in Delaware to force Hexion to go through with it, and once in Texas alleging that Hexion’s bid scared off another potential suitor, Basell.
The Texas suit could feature a big pay-off. Given its record so far is 1-0, and the Lone Star state is known for its plaintiff-friendly juries, Huntsman can be forgiven for looking to the courts for a little confidence. It isn’t getting much from the market. Huntsman shares sank 17 percent in premarket trade Monday.
Deals of the day:
* ArcelorMittal, the world’s largest steelmaker, said it sold part of its stake in German plate mill Dillinger Huette for 777 million euros ($1.03 billion).
Dawn of the Dead BCE Deal
Even in death, the BCE deal appears to be headed back to court. The C$34.8 billion ($27.8 billion) buyout of Canada’s biggest telecoms company had a C$1.2 billion termination fee. But the buyers — investors led by the Ontario Teachers’ Pension Plan — say they don’t owe BCE a thing because the company would have been suffocated by debt if the deal had gone through. After a long night when the deal finally died, BCE this morning is saying it wants the money.
The writing was scratched on the phone booth wall long before independent adviser KPMG handed down its opinion that a buyout would result in a debt load that would make BCE insolvent. That killed the deal. But think back to June, when BCE debt holders sued to block the deal, arguing that the value of their investments had fallen so low as to make a sale unfair to them.
Though the suit failed after getting all the way to Canada’s supreme court, the idea that bondholders could somehow have a say on whether a company could sell itself was a shot heard ’round the M&A world. Stock investors also sued over their dividends. The deal was dealt the black spot and now it is dead.
The banks that agreed to back a buyout are off a huge hook. The leveraged loan market still has $72.9 billion of loans needing to be sold, according to recent figures from Reuters LPC. BCE accounts for $23.05 billion. The buyers are also breathing a sigh of relief. One investor in a fund that would have had exposure to BCE said as much to Reuters private equity reporter Megan Davies.
If the aftermath of BCE is anything as ugly as the negotiations and courtroom dramas, $1.2 billion might be a cheap price to pay to put this thing to rest.
Deals of the Day:
* Lenovo Group, the world’s No. 4 personal computer maker, confirmed it is in preliminary talks on a possible investment or acquisition, a day after its stock soared on speculation of a deal.
BCE’s stock benefits from Citi saga
One beneficiary of Citi’s massive bailout was BCE Inc, the massive telecoms company that is being bought in one of the last remaining leveraged buyouts to close. Citigroup, alongside TD Securities, a unit of TD Bank Deutsche Bank and Royal Bank of Scotland, is financing the deal and the market has been nervous about the buyout cratering for months — evidenced by significant arbitrage spread.
One of the biggest worries for traders is the C$34.8 billion deal closing amid the turbulence in the financing markets.
But they gave the firmer footing for Citi a thumbs up and shares in BCE shot up 3.4 percent after the U.S. government agreed a bailout package for the bank.
(Reporting by Megan Davies)
Nice Move after all that has been going in the market….
Big CEOs make Big money on deals like this and normal people lose their jobs and live miserably ever after.
Clear Channel closes — finally
Drumroll, please: Almost two years after radio station and billboard company Clear Channel Communications began exploring strategic options, its $17.9 billion takeover finally closed on Wednesday.
The deal, slowed by legal battles in two states and negotiations to lower the purchase price, became a symbol of the buyout industry’s glory days and the subsequent struggles of the credit crunch.
Clear Channel had agreed to be acquired by private equity firms Thomas H. Lee Partners and Bain Capital Partners last year. The market quickly changed and credit to fund the acquisition became more costly and difficult to secure.
The buyout firms had agreed to buy Clear Channel for $39.20 per share, but were forced to file lawsuits in New York and Texas to ensure that a syndicate of six banks would still fund the deal. In May, the bank syndicate, the private equity buyers and Clear Channel struck a deal to lower the price to $36 per share.
And now Clear Channel’s stock will cease trading at the end of the day. Phew!
Sirius Satellite Radio and XM Satellite Radio also closed their merger this week after struggling for 526 days, or 17 months, to gain regulatory approval. The new Sirius XM Radio, with more than 18.5 million subscribers, is now the second-largest radio broadcaster after Clear Channel.
The next marathon wait? Shareholders of BCE Inc, the Canadian telecommunications company, must wait until Dec. 11 for the long-awaited $34.1 billion deal to close. Of course, that’s more than five months from now — who knows what could happen?
All aboard the Orient Express
Japan’s Sumitomo Mitsui Financial Group may invest about $926 million in British bank Barclays, people familiar with the matter told Reuters, the latest in a string of subprime-hit Western lenders increasingly turning to Asia for funding. Japan’s third-largest bank is also considering a business alliance in Asia with Barclays, which is expected to raise about $8 billion from sovereign wealth funds and other investors and then offer shareholders the right to buy on the same terms. If Sumitomo Mitsui opts to invest it would give the Japanese bank a stake of just over 2 percent. Up to five outside investors are also expected to participate, and backers may include existing Singapore-based sovereign wealth fund Temasek and China Development Bank, plus the Qatar Investment Authority.
Steve Ballmer insisted Microsoft will not seek to make a spate of other Internet acquisitions (Facebook, we’re looking at you) in the wake of its failed bid for Yahoo, according to the Financial Times. “People don’t understand what they’re talking about,” Ballmer said. “At the end of the day, this is about the ad platform. This is not about just any one of the applications.” Meanwhile, over at Yahoo, a spate of executives are reported running for the hills, just as the company is trying to justify its decision to go it alone and to repel Carl Icahn’s proxy fight. Among the departed: Flickr co-creator Stuart Butterfield, whose bizarrely hilarious resignation letter could best be summed up as: “There Will Be Tin.”
The fate of the world’s largest leveraged buyout hangs in the balance ahead of Friday afternoon’s decision by the Supreme Court of Canada on whether BCE treated its bondholders unfairly in agreeing to a $34.8 billion ($34.5 billion) takeover. Ontario Teachers’ Pension Plan, with U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity, are offering C$42.75 a share to take BCE, parent of Bell Canada, private.
More Deals of the Day:
** France Telecom declined to comment on a report in French paper Les Echos that it might be ready to make new concessions to improve its $41 billion cash-and-share offer for rival TeliaSonera.
** Malaysia’s second-largest lender, CIMB Bank, has agreed to buy a 42 percent stake in Thailand’s BankThai for about 5.9 billion baht ($177 million), the Bank of Thailand said on Friday.
** France’s leading sugar producer Tereos abandoned plans on Friday to bid for the sugar business of Danish food group Danisco, saying it would instead look for alternative acquisitions.
BCE deal gets a busy signal
Banks financing the $34.8 billion private equity buyout of BCE have been hammering away all weekend to win higher interest rates, tighter loan restrictions and stronger protections that far exceed the original terms, according to the New York Times. Citing people on both sides of the transaction, the paper said talks began to fray late on Friday but lasted all weekend. “It’s patently obvious that the banks have no intention of closing the deal,” said one executive who read the revised terms. Investors have long worried that the massive private equity buyout might be repriced, delayed or abandoned altogether. Looming over the discussions is the spectre of the Clear Channel deal, in which some of the very same lenders also tried to back out, producing an ugly tangle of court cases that was only resolved last week.
Microsoft said it proposed an alternative deal to Yahoo rather than a full acquisition, but a person who knows the mind of Carl Icahn, the man driving trying to unseat Yahoo’s board, said the move was likely to prompt the billionaire investor to nudge Yahoo back toward Google. This source isn’t just familiar with the matter, but has a taste for rustic allusions: “Microsoft is trying to get the milk without buying the cow, and if you look at Icahn’s history, he has never been used that way.” Microsoft did not clarify what that alternative deal might be.
Facebook founder and CEO Mark Zuckerberg stressed his company’s independent spirit, after a report said the social networking site might be sold to software giant Microsoft, which is hunting for ways to beef up its Internet business. “You can tell, from our history and what we’ve done, that we really wanted to keep the company independent, by focusing on building and focusing on the long-term,” Zuckerberg told Reuters while in Japan to launch a Japanese language version of Facebook. Microsoft already has a small stake and the Wall Street Journal said this month the software giant, with the Yahoo deal in limbo, had approached Facebook to gauge its interest in a full takeover.
U.S. diversified manufacturer Manitowoc has increased its bid for British kitchen equipment maker Enodis to $2.1 billion to trump a rival offer. Manitowoc, which makes cranes and restaurant equipment, said it was offering 294 pence a share for Enodis, topping an agreed bid of 282 pence a share from U.S. rival Illinois Tool Works. The offer from ITW beat an earlier bid of 260 pence a share from Manitowoc. Enodis, which makes fryers for fast food groups such as McDonald’s and Burger King, will also pay an interim dividend of 2 pence a share.
Other deals of the day:
* The direct banking arm of Dutch financial services group ING Group is offering 416 million euros ($644 million) in cash for Germany’s Interhyp to expand its global business.
* France’s PSA Peugeot Citroen said it would invest between 300 million euros and 350 million euros ($467.9-545.9 million) in a Russian joint venture with Japan’s Mitsubishi Motors Corp.
In the deal world small has become the new big!
Yes, M & A activity in hard dollars for 2009 likely will continue to be down; however, acquisitions within the lower middle market will likely and dramatically increase in the total numbers of acquisitions where the deals are less complicated, synergistic, and as well these deals usually reflect a higher ROI.
The money seeking investment has not disappeared, it is just very cool to the large deal. Much of he available money is sitting in -0- % treasuries, and as such is tremendously under utilized. This money must “go to work”.
Gene Sartin
President & CEO
The Transition Companies
http://www.transitioncompanies.com
gsartin@transitioncompanies.com